Is Passive Income a scam?

"Earn money while you sleep" is a tempting idea, right? This idea, called passive income, seems like an easy way to live a rich life with little work. But it's not always as perfect as it sounds. In this post I’ll explain exactly what passive income is, how you can create it, and my take on how it can play a part in your journey to wealth.

Prefer to watch? Check out my youtube video instead:

Different kinds of income: Active and passive

There are two main types of income: active and passive. Active income is what most of us know – it's the salary you get from working a job or the commission you get from making a sale. Effectively, you work, and you get paid.

Passive income works differently. With passive income it's about investing your time or your money at the start, with the intention of making returns later without much extra effort. Examples of this are things like making content for platforms like Spotify and YouTube in exchange for ad revenue or owning a property and earning rental income from it.

The truth about passive income

Passive income can be tricky. People often want fast results, and this can lead to hasty and irrational decisions. The internet is filled with people selling so called easy ways to get rich, but in most cases these don't work. The people that sell these methods likely just want to sell their own courses or products. The truth is, making a steady and reliable source of passive income is extremely difficult, and will often take a few failures to get it right.

How to really make passive income

There are two main ways to try for passive income:

1. Creating something to sell: This means finding a specific area that you believe you can provide value. Whether it’s pieces of content, a course, a physical or digital product, or even your own services, by investing your effort and time in to creating, testing and selling you can eventually build something that makes returns without you having to continuously trade your time for money. The hard part is committing the time required to create and sell your product or service. It takes years of patience and hard work.
2. Investing in things that make money: The other way is to save money and then invest it in assets like stocks that pay dividends or properties to rent out. This can be a much faster way to generate returns, but you’ll need a large cash investment to get started. From my own experience, the returns you make from things like dividends are quite small in comparison to what you invest. When it comes to rental properties, returns may be higher, however the risks associated with the investment could mean that you don’t get the returns you hoped for.

Be ready for surprises

Remember, passive income isn't always smooth sailing. For example, my 'hand off' property investments sometimes needed my direct help. Investments have risks and things can go wrong. You should be ready for times when you don't make as much money as you hoped, or when you need to put in more work.

In the three years that I’ve owned my investment property, I’ve had at least 5 occasions where something has gone wrong and a contractor was needed. Each time this happens I need to pay a call out charge of around £100 PLUS the actual charges for any parts or work that needs to be done.

I’ve also had 3 tenants in 3 years, and each time this happens I have to pay my estate agent a £500 finders fee to find a new tenant. All of this eats away at my returns and also takes up my time.

The importance of patience

No matter which way you choose, you need to be patient and keep at it. Generating passive income usually takes a number of years and needs careful planning. It's not a quick or easy way to get rich.

It's important to know that passive income isn't just easy money. You need to understand how much work and money that you need to commit and whether you can actually keep up with it sustainably. While it's possible to make passive income, it usually comes from good planning, staying committed, and making smart choices, not from an easy shortcut to wealth.

If you're interested in discussing your financial goals and how I can help you achieve them, feel free to schedule a FREE discovery call.

Enjoying my content? Sign up to my FREE newsletter to keep up to date with all my latest posts!